What is the Representative Example?

New European rules came into effect on 31st January 2011. They changed the way credit products such as credit cards and personal loans are advertised. The new rules aim to make it easier for consumers to understand what they will be charged in interest and fees for credit products. The "Representative Example" is part of these changes.

How does the Representative Example work?

It provides an example of how much the credit card or personal loan is likely to cost the person applying for the product, based on an assumed credit amount of £1,200. If it is for another amount, the advert will make it clear. The actual credit limit assigned to individual accounts will vary depending on the Issuer's credit assessment of each applicant.

What information is provided in the Representative Example?

The Representative Example aims to provide a comprehensive description of how much the credit is likely to cost the applicant. The description includes:

• The rate of interest for the most common credit drawdown mechanism on the product and whether it is fixed, variable, or both. E.g. for a Balance Transfer credit card, this would be the Balance Transfer interest rate.
• The nature and amount of other charges which are included in the total charge for the credit
• The total amount of credit - the credit limit
• For personal loans, the duration of the loan period
• The Representative Annual Percentage Rate (APR)

Does the Representative APR replace the old Typical APR and is it different?

Yes, the new term Representative APR replaces the old Typical APR. It is different in two ways:

Firstly, the Representative APR is a wider measure of the total interest you are likely to have to pay. It combines in a single, Annual Percentage Rate, all the interest and fees included in the total charge for credit, as described in the Representative Example.

Secondly, the new rules state that the Representative APR must be:

"An APR at, or below which the advertiser reasonably expects, at the date on which the advertisement is published, that credit would be provided under at least 51% of the agreements which will be entered into as a result of the advertisement."

So, the advertiser has to plan that at least 51% of successful applicants from this advertisement will receive credit on these terms of interest. It also means that up to 49% of applicants could be offered a higher rate of interest, depending on their circumstances (e.g. their credit rating, etc.)